The Business Chassis is made up of five component parts. Mastering these five components is essential to creating a robust and thriving business. These five components are: generating leads, conversion rate, number of transactions, average dollar sale, and profit margins. The sad thing is most business owners don’t know the numbers associated to any of these five areas, even though they are critical to running any business.
These five components are called the Business Chassis because your entire business “runs” on these components. No business operates without them. These are fundamental. And, when you consider them as a math equation, they represent the fundamental math that leads to business growth and success or business failure and death.
Here’s the math.
(Number of Leads Generated) x (Conversion Rate) = Number of New Customers
If you intend to add more customers, you must do at least one of two things. You must increase your number of new leads (those who are aware that your business exists) or increase your effectiveness in converting those leads into customers. Both can be done, and each requires specific strategies to be effective and productive.
(Number of Customers) x (Number of Transactions: the frequency of purchase) x (Average $ Sale per transaction) = Total Revenues
Once you know your total number of customers, you can multiply that number by their average purchase frequency to get the total number of transactions you can expect in a period. Then, multiplying that number by the average ticket price for a sale, you get the total revenue generated during that period.
If you want to increase your revenues, you must either increase the frequency of purchase of your existing customers or get them to buy more each time they visit with you. Again, both are achievable and both require different strategies to get results. Focusing your strategies on your specific Business Chassis goals is a critical part of success.
Once you have your new Total Revenue, you can multiply that by your Profit Margin to get your total available margin or Operating Profit. If you want to increase the profitability of your business, then you must find ways to improve your profit margins so that you make additional margin dollars on every transaction. Again, there are a multitude of strategies that will work to make this happen. You simply decide what you are going to accomplish and implement the strategies in a focused manner.
Now, here is where the magic comes in. Because this is a math equation:
(Leads) x (Conversion Rate) x (Number of Transactions) x (Average $ Sale) x(Profit Margins) = PROFITS
Each individual component is magnified in its importance because of the multiplicative effect. In other words, since each component is multiplied by the others, even a small change in any component can result in a large change in the bottom line profit.
For example, a 10% increase in each of the five components of the Business Chassis will result in a 62% increase in the bottom line profits! Small improvements focused on each of these five areas will have a dramatic increase in your business. Sound too good to be true? It is real - trust the math!
This is a POWERFUL concept that most business owners overlook. Simply understanding how the math equation works is game-changing. Then taking the time to develop the specific strategies to use to make the improvement happen can change the future course of your business forever!